Applications for a mortgage to purchase a home dropped 3% for the week and were 27% lower than the same week one year ago

Mortgage interest rates soared across the board last week, with the rate on the government's low down payment option increasing to the highest level in 21 years. That hit mortgage demand hard, with total application volume dropping 3.1% last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 7.09% from 6.93%, with points rising to 0.70 from 0.68 (including the origination fee) for loans with a 20% down payment. The average rate for jumbo loans hit 7.04%.

The rate on Federal Housing Administration loans, which are favored by first-time or lower-income borrowers because they offer low down payments, hit 7.02%, the highest since 2002.